Australian home values fell last month, adding to pressure on the Reserve Bank to slash interest rates to rekindle demand in the sector. Melbourne's values led falls, and are now down 7 per cent from a year earlier.

Sydney was down 0.3 per cent in April, Melbourne's slid 1.7 per cent and Brisbane lost 1.3 per cent.

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‘‘On a 12 month basis capital city dwelling values have fallen by 4.5 per cent, with the weak conditions in Melbourne (-7.0 per cent) and Brisbane (-6.4 per cent) dragging the weighted average down,’’ RP Data property analyst Tim Lawless said.

Sydney's home values were down 2.6 per cent, seasonally adjusted, from April last year.

For the year to date, values have fallen across Australia's combined capital cities by 0.7 per cent, seasonally adjusted RP Data said.

The Reserve Bank is widely expected to cut official interest rates today for the first time in 2012 after a series of soft economic figures, including modest inflation for the March quarter. Investors bet there's a one-in-three chance that the central bank will lop a full 50 basis points from its cash rate at today's meeting, which would make it the biggest reduction since the depths of the financial crisis.

Today's weak home values data follow news that new home sales have dropped to their lowest level in 17 years.

The number of contracts signed for new homes fell in March to 5443, down 9.4 per cent from the previous month. Multi-unit sales also fell, down 6.4 per cent.

The combination of falling home values and weak sales will add to calls for the RBA to stimulate the housing market by cutting interest rates by as much as 50 basis points today.

The weak numbers will also increase pressure on the Victorian state budget, due out today, as stamp duty revenues shrink.

March price falls

In a separate report out today, official house price figures from the Australian Bureau of Statistics reinforced evidence of the drop in home values.

Australian capital city house prices fell 1.1 per cent in the March quarter, the figures showed, more than twice the 0.5 per cent drop predicted by economists.

Melbourne again featured with one of the bigger falls among the cities, with prices down 2.2 per cent for the quarter and 6.6 per cent from a year earlier.

Sydney posted a 1.8 per cent drop for the March quarter, while house prices in Australia's biggest city slid 4.6 per cent from a year earlier.

The March quarterly drop compares with a revised 0.74 per cent fall in the December quarter.

In the year to March, the house price index fell 4.5 per cent, the ABS reported.

National Australia Bank chief economist Rob Henderson said the ABS data showed successive interest rate cuts in November and December had done little to support house prices.

‘‘Three months after two interest rate cuts, what has happened to house prices? They have fallen,’’ he said.

‘‘So it doesn’t suggest interest rate cuts are much of a panacea for the housing market does it?’’

Sales slow

The sluggish demand is also showing up in the number of houses sold.

Property transaction volumes are now about 31,000 a month compared with sales of 45,000 a month during the more heated market in mid-2009, RP Data said.

“Our estimate of transaction volumes to February suggest that the two interest rate cuts in November and December last year are yet to provide a sustained stimulus to the market,’’ Mr Lawless said.

That, in turn, had a multiplier effect on other parts of the economy, he said.

‘‘Agents, mortgage brokers and banks are at the frontline. The number of new homes selling is very low, housing starts are low and that flows into the sale of whitegoods, building materials and household furnishing,’’ he said.

In April alone, home values rose 1.6 per cent in Darwin, 1.2 per cent in Adelaide and 0.2 per cent in Canberra, RP Data’s figures show.

Hobart values fell the most for the month, down 2.9 per cent, while Perth’s fell 0.4 per cent.

BusinessDay with AAP

177 comments

But why!? why do they have to cut rates to inflate prices again?

This downturn is good for first home buyers and I am one of them currently looking.

Aside from the fact the banks wont pass on the full cut anyway... I just dont get why its acceptable for people to be paying more than half thier income on a place to LIVE!

Commenter

Chris

Location

Reality

Date and time

May 01, 2012, 10:58AM

It's all about preserving the balance of power and votes. Free market my...

Commenter

yobbo

Location

Date and time

May 01, 2012, 11:08AM

I agree Chris... housing needs to come back into line with wages and real affordability, not this cheap debt insanity thinking.

In the long run neither side of politics wants wages to go up so house prices have to plateau for a while.

Commenter

tim

Location

adelaide

Date and time

May 01, 2012, 11:09AM

@Chris

Don't panic. A rate cut will do nothing to put a floor under prices.

People are worried about their jobs. They're not borrowing. Bubble... popping.

Commenter

it had to happen

Location

Date and time

May 01, 2012, 11:18AM

Oh My God the sky is falling! Run for your lives....@Allan, the only way your doomsday scenarios will ever play out is if there is a catastrophic reduction in the world's population of 9 billion+ people in the next 7 years.@Chris, the RBA's job is not to assist you to buy a house, it is to keep the Australian economy growing at a healthy rate while ensuring inflation remains at a sustainable level.

Commenter

Keep it real

Location

Albert Park

Date and time

May 01, 2012, 11:20AM

Chris. I think they are more focused on consumer spending. I don't really think the price of houses is high on the RBAs priority list. The problem they have is that credit card spending has fallen off a cliff. Many consumers have credit cards that are guaranteed by an asset. Their home, in most cases. Not only are they not spending anyway they are afraid to spend because the value of their house is going backwards. The problem is, 25 or 50 basis points at this point in the game is not really going to stimulate anyone. Next priority is the exchange rate. They are fast getting to the point where they may need to bring it down - PIGS problems. If I was the RBA I would keep the powder dry until they are in position where they may have to cut by 200 or more (when Spain collapses). 25 or 50 is just a drop in the ocean.

Commenter

Hans Brix

Location

Macquarie Street

Date and time

May 01, 2012, 11:27AM

Be careful what you wish for! A lot of employment and prosperity relies on the housing industry and a severe loss of confidence and a steep loss of values will end badly in terms of unemployment. Better to have modest rises in house prices which are sustainable.

Commenter

Harry

Location

Churchill

Date and time

May 01, 2012, 11:30AM

Chris, if unemployment gets worse, interest rate reductions won't make any difference. If you don't thing you'll have a job in the near future, buying a house will not be an option. This will keep prices falling until the job market picks up.

Commenter

Jim

Location

Bayside

Date and time

May 01, 2012, 11:30AM

In the current situation a rate cut will not inflate prices. It might increase sales volumes at the current prices. That is what the RBA will be looking for.

Commenter

Youpee

Location

Date and time

May 01, 2012, 11:35AM

Chris,

The reason why is simple. Too much money has been made off this ponzi, noone wants it to stop. The ponzi has led to the massive expansion in wealth and power for the finance industry, the government have gotten their share through taxes, and the early entrant baby boomer buyers in the real estate ponzi have got rich.

There's your answer. 2 out of 3 people own a home and want the ponzi to go on.